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Sandvik in Press Note 1 battle with Eimco Elecon

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Surajeet Das Gupta New Delhi

Another battle over the contentious Press Note 1 guidelines on foreign direct investment is brewing — this time between Pune-based Sandvik Asia, a publicly-listed company in India in which Sweden's Sandvik has a 91 per cent stake, and its partner Gujarat-based Eimco Elecon.

Sweden's Sandvik has a 91 per cent stake in Sandvik Asia. Another subsidiary, Sandvik Mining and Construction, owns 25.1 per cent in Eimco, whose Indian promoter Bhanubhai Patel holds 48 per cent.

A few months ago, Sandvik Asia sought Foreign Investment Promotion Board (FIPB) approval to acquire a majority, but undisclosed, stake in Tamil Nadu-based drilling equipment manufacturer Revathi Equipment for Rs 500 crore, to expand its mining and construction business.

 

Last month, Eimco told the government that Sandvik has to take a "no-objection certificate" (NOC) required under foreign direct investment (FDI) norms, laid down in Press Note 1. The Press Note stipulates that a foreign company with a joint venture in India must get an NOC from the current partner, if it is setting up another joint venture or subsidiary in the same or a similar business.

FIPB, which has deferred the case last month, is divided over the contentious proposal. The commerce department has supported Sandvik's proposal but asked the FIPB to consider Eimco's objections. The departments of industrial and policy (DIPP), heavy industries, and revenue have objected to the proposal saying an NOC is required.

In its representation to FIPB, Eimco Elecon has said Sandvik controls 25.10 per cent of the company's paid-up capital. After Sandvik became a joint venture partner, the Swedish giant signed three technology transfer agreements. Eimco has contended that if the new JV of Sandvik is allowed, there would be confusion as products offered by different manufacturers using the same technology would be available in the same market creating confusion.

Sandvik has argued that some of the technology agreements with Elecon were with two US-based companies that Sandvik acquired in 1997. These agreements, Sandvik has said, were terminated in 2006, and all Eimco's rights ceased to exist.

Sandvik has also argued that the technology agreement between Voest Alpine and Eimco, which still exists, is not in the same field of business as Revathi. Alpine was bought by Tamrock, which acquired Sandvik in 1996.

The Sandvik case is similar to that of a dispute between Larsen & Toubro's (L&T) and former partner Ralf Schneider Holdings. L&T had demanded that the German engineering giant acquire an NOC from it before setting up a 100 per cent subsidiary in India. L&T claimed it has a technical collaboration with the company and needed an NOC as the new company would operate in the same area. L&T's plea was, however, rejected by the FIPB and the application was cleared last month.

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First Published: Jan 19 2009 | 12:00 AM IST

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